What does stripping a second mortgage mean? Stripping a second mortgage as part of a Chapter 13 Bankruptcy means that on completion of the Chapter 13 Plan the second mortgage deed will be removed and the lien is voided. For those who may not know of me, I am not an attorney and I am not providing legal advice. I am simply explaining a second mortgage strip from a debtor’s point of view.
Following is a hypothetical illustration of a situation that will benefit from a second mortgage lien strip:
- Current Market Value $290,000
- First Mortgage Balance $295,000
- Second Mortgage Balance $75,000
Upon completion of the Chapter 13 Plan the second mortgage in the above illustration, the second mortgage would be stripped away from the property. This would leave only the first mortgage secured against the property. In other words $75,000 of debt would be stripped from the debt against the property. On the other hand if the current market value is determined to be $290,001, the second is secured and can’t be stripped. You need the best valuation available in your market area.
How does one determine the current market value of your house? Let us start with how you do not determine the current market value. It is not the value as determined by your county tax assessor. To be taken with a grain of salt are the on-line automated valuation systems such as Zillow and others. Among the reasons the automated valuation systems are not reliable is they cannot take into account sales concessions or condition of property. The best way to determine how to obtain a valuation is to talk with your attorney for a referral to do a fair market value analysis.
For a thorough legal discussion of stripping a second mortgage in Chapter 13 bankruptcy, I recommend this white paper by Professor Adam Levitin. However the best and simplest way to discover the facts surrounding a second mortgage strip in your particular situation is to discuss the particulars and details with your bankruptcy attorney.
On selecting a bankruptcy attorney: Keep in mind you get what you pay for. Look at how much debt you are legally shedding and get the best counsel available to make sure it is done right. Read the retainer or representation agreement. The best attorneys will meet with you personally. Ask questions.
Art Credit: Google ImagesFinancially Speaking – James Spray CCMB, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 | April 8, 2011 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.